Solar investment-case-mac-solar
- 1. The Investment Case for Solar Tracking index for Invesco Solar ETF (NYSE ARCA: TAN)* www.MACsolarindex.com
- 2. Long-term bullish factors for solar sector • Impressive growth potential -- Solar has impressive growth potential with forecasts for $4.2 trillion of solar spending through 2050, with solar representing 28% of all new global electricity generation installs (Source: Bloomberg New Energy Finance). Solar PV will generate 38% of all electricity globally by 2050, up from 11% today (BNEF). • Low-cost electricity solution – Solar’s levelized electricity cost has already plunged by 85% since 2010 (Lazard) due to dramatic technology advances and economies of scale. Solar’s cost will plunge by another 71% by 2050 (BNEF). New solar plants have already become significantly cheaper to build than new coal, nuclear, or natural gas plants and solar is cheaper than coal on a marginal-cost basis (Lazard). • Government support is only icing on the cake -- Solar has become a self-sustaining industry due to sharply lower solar costs and no longer needs government subsidies, although the industry still benefits from strong policy support across the globe. • Solar-plus-storage provides robust 24/7 energy solution -- Solar-plus-storage systems provide a 24/7 source of electricity and solve solar’s intermittency problem. Solar-plus-storage systems are already cost competitive and will become even more so as battery costs plunge by another 50% through 2030 (BNEF). 1
- 3. Solar – Long-term solution for sustainable electricity Advantages • Clean & Safe - Solar is a clean & safe electricity solution; unlike nuclear, coal, natural gas. • Cost certainty - Solar has a fixed up-front electricity-generation cost with no fuel cost risk, unlike coal and natural gas where generation costs depend on unknown future fuel costs. • Falling costs - Solar costs are falling steadily due to technology improvements and manufacturing scale. Also, solar has a near-zero marginal cost once installed, unlike high marginal fuel operating costs for coal and natural gas. • Distributed Generation - Solar insulates electricity users from grid failures and protects against future utility electricity price increases. • Scalable - Solar can be large scale (utility) or smaller scale (residential, commercial buildings). Disadvantages • Day-Use Only – but matches peak electricity usage times and can be paired with battery storage. • Variable solar intensity – but still economical in northern climes. 2
- 4. Greenhouse gas emissions are clearly driving global warming 3 Source: Fourth National Climate Assessment (p 79)
- 5. U.S. Climate Change Indicators 4 Source: Fourth National Climate Assessment (p 38)
- 6. Current fossil-fuel-based energy system is massively inefficient with two-thirds of energy wasted by heat loss • Burning fossil fuels wastes two-thirds of potential energy to heat loss • Solar and wind, by contrast, deliver 100% of electricity generated with no heat loss and no pollution or CO2 emissions, producing a cleaner and much more efficient world energy system For details, see “Universal Energy” by Benham at www.dollarsperbbl.com/2018/07/22/universal-energy/ 5
- 7. High Growth Industry: 21% Annual Solar Growth Last 5 Years 6 • Global solar installations have grown sharply by an average 21% over the last 5 years • Pandemic caused only minor disruptions, with 21% solar growth in 2020 • For 2021, BNEF is forecasting 29% solar growth to 185 GW
- 8. Leaders: China, India, U.S., Japan 7
- 9. China leads by far on cumulative solar capacity 8
- 10. Solar the largest source of electricity by 2032 with long- term annual growth of 12% 9 • IEA says solar will become the “king of electricity,” with the more cumulative capacity than any other power generation technology • Double-digit annual growth of 12% during 2019-2020. (IEA Sustainable Development Scenario) Source:International Energy Agency (IEA) World Energy Outlook 2020
- 11. Solar sees rapid growth as total global electricity demand doubles by 2040 • Global electricity demand doubles by 2040 to satisfy larger global population and electrification of transportation • Doubling of electricity demand drives even stronger solar growth (IEA Sustainable Development Scenario) Source:International Energy Agency (IEA) World Energy Outlook 2020 10
- 12. Climate change can be mitigated if zero-carbon power generation rises to 78% of total generation by 2040 • IEA says UN sustainable development goals can be met, with net-zero emissions by 2070 and maximum 1.65oC temp rise if renewable and nuclear electricity rises to 78% of total by 2040 (Sustainable Development Scenario) Source:International Energy Agency (IEA) World Energy Outlook 2020 11 • Energy system changes (electrification-plus-hydrogen): ▪ Zero-emission electricity generation ▪ Electrify transportation ▪ Hydrogen for high-temp industry needs ▪ Phase out fossil fuels
- 13. Solar shows double-digit annual growth over next 10 years in all three IEA scenarios 12 • Stated Policies Scenario (STEPS) – current policy ambitions and targets are met • Sustainable Development Scenario (SDS) – achieves UN sustainable development goals; net-zero emissions by 2070; limit temp rise to 1.65oC • Net Zero by 2050 Case (NZE2050) – achieves net zero emissions by 2050; limit temp rise to 1.5oC Source: International Energy Agency (2020), World Energy Outlook 2020, IEA, Paris, Figure 4.8, p. 133
- 14. Solar cell costs have plummeted by 99% since 1970s Solar costs have plummeted due to: • Technology innovation • Manufacturing economies of scale Solar is a high-tech product that follows a technology learning curve -- costs fall sharply as production rises 13
- 15. Solar is a high-technology product where costs will continue to fall due to the technology learning curve Solar cell and module costs follow a technology learning curve similar to that of other technology products such as semiconductor chips, DRAM circuits, etc. Solar PV learning curve is known as “Swanson’s Law” and follows the more general “Wright’s Law” Law states that solar module prices fall 20% for every doubling of cumulative shipped volume (double log scale) Chart source: https://en.wikipedia.org/wiki/Swanson%27s_law#/med ia/File:Solar-pv-prices-vs-cumulative-capacity.png 14
- 16. Extensive solar scientific research increases cell efficiency and reduces solar costs 15
- 17. Solar electricity costs have dropped dramatically by -85% since 2010 16 ▪ Levelized cost of electricity (LCOE) of utility-scale solar PV plants has plunged by 85% since 2010 and by an average of -11% per year over last 5 years. ▪ Solar PV will continue getting cheaper in coming years, making it an even more formidable competitor against other electricity sources.
- 18. New Utility-Scale Solar PV plants are already cheaper to build on average than nuclear and fossil fuel plants 17 ▪ Utility-Scale Solar PV plants in the U.S. are now cheaper to build than any other technology (unsubsidized basis) ▪ Solar PV is winning as the cheapest electricity source, even aside from climate change tailwinds ▪ Solar is potentially the most attractive sub-sector within the clean energy revolution
- 19. Utility-Scale Solar LCOE ranges beat or match fossil fuels and nuclear U.S. Levelized Cost of Electricity (unsubsidized) – Lazard LCOE 14.0, Nov 2020 18
- 20. Solar Pricing – Polysilicon has rebounded from record low due to temporary factory closures 19 • Polysilicon prices have dropped sharply in the past decade, reducing the cost of the main material input for solar cells • Polysilicon prices in the past year have recently shown a temporary increase due to disruptions at several large polysilicon plants from fires and flooding.
- 21. Solar Pricing – Module prices down -87% since 2010 20 • Solar module prices have plunged by -87% since 2010 • Solar module prices have fallen due to technology learning curve and manufacturing economies of scale • Decline in solar module prices expected to continue in coming years
- 22. Solar-plus-storage is taking off as a 24/7 solution • Energy storage expected to surge in coming years and aid solar in becoming a 24/7 electricity generation system. • Storage expected to surge 122x and 24% CAGR through 2040 with $662 billion of sales (BNEF). • Battery costs expected to drop by another 50% through 2030, adding to 85% drop 2010-18. • BP-backed Lightsource says all of its utility-solar proposals in western U.S. now include battery storage. • U.S. Solar-plus-storage at 5.8 GW installed now, with 28 GW pipeline (4x). 21
- 23. Renewable energy plus storage is the world’s long-term future; Technology ultimately wins against burning fossil fuels • Burning fossil fuels needs to be phased out to preserve sustainable human habitation on earth • Renewables plus storage provide the long-term solution • Technology learning curves for renewables and storage will continue to drive costs lower to easily provide the lowest-cost electricity • Technology ultimately wins against burning fossil fuels • Solar and storage are only in the second or third inning, with decades of strong growth Technology road-map to 2050 by International Renewable Energy Agency: • Renewable share to increase to 85% from 24% • Solar PV grows by 32x from 2015 to 7,122 GW • CO2 emissions drop by 85% • Spending of $24.6 trillion on power generation and $18 trillion on storage and grid Source: IRENA Global Energy Transformation: A Roadmap to 2050 22
- 24. MAC Global Solar Energy Stock Index - Methodology Index Governance • S&P is the benchmark administrator of the MAC Solar Index under EU regulations • 5-Member S&P Index Committee governs the MAC Solar Index • S&P conducts quarterly index reviews and makes all decisions regarding index constituents, weights, corporate actions, etc, as specified by EU BA regulations Methodology key items: • 100% rules-based passive index – no stock picking . Constituent stocks must be listed on primary exchanges in specified markets (S&P Developed Markets plus Taiwan). Quarterly index review on third Friday of March, June, Sep, Dec. Liquidity minimums to add a stock: $250 million market cap and $750,000 in 3-month average daily trading value. • Index has 13-year history with inception on 31-Mar-2008 23
- 25. Methodology – Solar Focus & Environmental Exclusions Solar sector focus • “80% Solar Investment Policy” – At least 80% of the weight of the index is required to be in stocks with over 50% solar revenue (currently at 91%) • No stocks below 1/3 solar revenue • Exposure Score 1.0 for pure-play solar stocks (solar revenue above 2/3); Exposure Score of 0.5 for medium-play stocks (1/3 to 2/3 solar revenue) reduces stock’s weight in the index Environmental exclusions – Stocks are excluded from the Index if S&P Trucost data shows the company has any involvement with: (1) fossil fuel extraction, or (2) electricity generation with coal, oil, or nuclear 24 See MAC Solar Index methodology at https://www.spglobal.com/spdji/en/custom- indices/mac-indexing-llc/mac-global-solar-energy-index-net-total-return/#overview
- 26. Methodology – Index Weighting Modified Market Cap Weighting: • Index weights are assigned quarterly at index rebalance by calculating the regular market-cap weighting and then using a weighting-gap process to pull weights together proportionally until stocks with a weight over 4.5% do not exceed a total of 45%. • Result is that weights are as close to regular market-cap weighting as possible while still meeting RIC index diversification requirements (combined weight of stocks over 5% cannot exceed 50%) • Also, weight is capped at 10% for individual stocks at rebalance, although weight can drift above 10% post-rebalance due to stock rally • Weighting methodology promotes investability of smaller stocks in the Index 25 See current MAC Solar Index constituent weights at www.macsolarindex.com/stocks-in-the-index/
- 27. Advantages of Index/ETF Over Individual Solar Stocks • Diversification – across geography, technology, value chain • Own the global solar sector in one trade – reduced transaction costs • Long track record – 13+ year history (launched in April 2008) 26
- 28. Index Diversification Across Geography By Company Headquarters: • Asia: 20 companies • EMEA: 14 companies • North America: 12 companies By Stock Listing: •North America: 18 companies •Asia: 15 companies •EMEA: 13 companies 27 As of June 2021
- 29. Index Diversification Across Solar Industry Value Chain Solar Manufacturing & Integrated • First Solar Inc (FSLR US) • Hanwha Solutions (009830 KS) • Sunpower (SPWR US) • Canadian Solar (CSIQ US) • JinkoSolar (JKS US) • United Renewable Energy (3576 TT) • Meyer Burger (MBTN SW) • TSEC Corp (6443 TT) • Motech Industries (6422 TT) • Maxeon Solar Technologies (MAXN US) • Giga Solar Materials (3691 TT) • Anji Technology (6477 TT) Solar Polysilicon/Wafer Manufacturers • Daqo New Energy (DQ US) • GCL-Poly Energy Holdings (3800 HK) Solar Panel Glass Manufacturers • Xinyi Solar Holdings (968 HK) • Flat Glass Group (6865 HK) • Luoyang Glass (1108 HK) Solar Power DC-AC Electrical Inverters • Enphase Energy (ENPH US) • SolarEdge Technologies (SEDG US) • SMA Solar Technology (S92 GY) Solar Panel Support Structures/Trackers • Array Technologies (ARRY US) • Shoals Technology (SHLS US) • Soltec Power Holdings (SOL SM) Residential Solar Power Installers • SunRun (RUN US) • Sunnova Energy Intl (NOVA US) Solar-Powered Charging Stations • Beam Global (BEEM US) Solar Project Finance • Hannon Armstrong Sustainable Infrastructure (HASI US) Solar Power Project Developers/Operators • Scatec Solar (SSO NO) • Atlantica Sustainable Infrastructure (AY US) • Encavis (CAP GR) • Solaria Energia (SLR SM) • Xinyi Energy (3868 HK) • Neoen SA (NEOEN FP) • Enlight Renewable Energy (ENLT IT) • Renova Inc (9519 JT) • Azure Power (AZRE US) • Energix-Renewable Energies (ENRG IT) • West Holdings (1407 JT) • Solarpack Corp Tecnologica (SPK SM) • Beijing Enterprises Clean Energy (1250 HK) • Doral Group Renewable Energy (DORL IT) • O.Y. Nofar Energy (NOFR IT) • ReneSola (SOL US) • Grenergy Renovables (GRE SM) • GCL New Energy Holdings (451 HK) • Sunworks (SUNW US) 28 As of July 2021
- 30. For More Information • Download solar sector research reports at: www.macsolarindex.com/solar-research/ • List of solar information sources at: www.macsolarindex.com/resources/ *The MAC Global Solar Energy Index (SUNIDX) is licensed as the tracking index for the Invesco Solar ETF (NYSE ARCA: TAN). Index performance does not reflect transaction costs, fees or expenses of TAN. This material is provided solely by MAC Global Solar Energy Index, not by Invesco which bears no responsibility for the content or use of this material. Copyright. All rights reserved. MAC Solar Index. www.macsolarindex.com. The information contained herein is not guaranteed as to its accuracy or completeness. No express or implied warranties nor guarantees are made. No responsibility is assumed for the use of this material and those individuals acting on this information are responsible for their own actions. Any opinions expressed herein are subject to change without notice. Nothing contained herein should be construed as an offer to buy or sell, or as a solicitation to buy or sell, any securities or derivative instruments. Security and derivatives trading may not be suitable for all recipients of this information. Please consult with your investment advisor before investing. 29